1.4 The market

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Glossary Notes Exercises Past Exams

Student Checklist AS90198 Economics 1.4
Describe the market.
Credits 5
Achievement Criteria

Achievement
 Achievement with Merit
 Achievement with Excellence
· Describe the market and market equilibrium.
 · Describe the market and explain market equilibrium.
 · Describe the market and fully explain market equilibrium.

Describe means to give basic definitions, details about, an account of, relate, or demonstrate knowledge of. Students may give descriptions in words, diagrams, flow charts, graphs or other similar devices.
Explain means to identify a key idea and say why or how, give reasons for, predict, interpret, compare, or distinguish in the context given.
Fully explain means to explain in depth and/or breadth.

NB: Definitions must be precise and should be backed up with an example where possible.

The assessment of concepts related to the market will involve a selection from the following:

Element
 I know this √☺
  • The nature and diversity of markets:
o Define a market
o Give examples of goods or services exchanged at:
§ a place
§ a situation
§ the diversity of goods and services markets
  • Alternatives to markets
    • Non-market ways in which some groups in NZ make decisions when attempting to satisfy their unlimited wants
    • Barter, “green dollars”, DIY, self sufficiency
    • Government agencies, volunteer organisations, clubs and societies

  • Understand that exchange usually occurs with the aid of money:
    • Define money & barter
    • Explain how money simplifies the exchange of goods and services;
    • Explain the link between specialisation, interdependence, markets and exchange.

  • The rights and obligations of participants in the market:
    • Define rights (and identify at least 3 rights of buyers AND sellers);
    • Define obligations (and identify at least 3 obligations of buyers AND sellers);
    • Define ‘fit for purpose’; ‘acceptable quality’; and the 3 R’s of the Consumer Guarantees Act;
    • Identify the essential requirements for a contract;
    • Describe situations when the following acts would apply (and explain why)
§ The Consumer Guarantees Act 1993;
§ The Fair Trading Act 1986;
(You need to know the general purposes of these acts)


  • Identification of market equilibrium, excess supply and excess demand
  • Derivation of market demand and market supply
    • Define: excess demand (shortage) & excess supply (surplus), market equilibrium, market demand, market supply and market forces;
    • Calculate from given data market demand and market supply;
    • Construct a market demand and supply graph (from given data) with appropriate conventions;
    • Identify on a market graph: equilibrium price, equilibrium quantity, excess demand and excess supply;


  • How the market reacts to excess demand or excess supply to reach equilibrium
    • Explain fully how situations of excess supply and excess demand EACH push the market back to equilibrium price
§ Excess demand (shortage) - ↑P why and how do consumers and producers respond?
§ Excess supply (surplus) - ↓P why and how do consumers and producers respond?

  • Analysis of the effect of price controls
    • Define minimum and maximum price;
    • Analyse the impact of price controls, which over-ride market forces
§ By drawing a supply and demand graph showing it AND
§ Then explaining what has happened


  • Analysis of supply and demand to explain and predict changes in price and quantity:
    • Sketch the changes on a S/D graph to show the following and explain
§ Why the curve shifts;
§ The effect on price and quantity
§ How equilibrium is restored
  • Increased demand, decreased demand, increased supply and decreased supply (give specific reasons for shifts)


  • Analysis of the effect of price controls, taxes (direct and indirect) and subsidies on market equilibrium:
    • Define direct tax & identify examples - company tax, pay as you earn (PAYE), & resident withholding tax (RWT);
    • Analyse direct taxes using S/D graph – explain the curve shift and predict impact on price and quantity i.e. explain why a decrease in direct taxes INCREASES DEMAND (why consumers buy more at each and every price), as well as increases in direct taxes


    • Define indirect tax & identify examples – goods and services tax (GST), sales tax (per unit), excise duties;
    • Analyse indirect taxes using S/D graph:
§ You must be able to show:
· how the S curve shifts by the amount of the tax;
· Ptax, Qtax, Area (amount of tax paid to govt);
§ You must be able to calculate:
· Consumer spending before and after tax;
· Producer earnings before and after tax;
· Tax paid to govt
    • Explain why indirect taxes shift the supply curve i.e. why increases in indirect taxes DECREASES SUPPLY (why producers offer less for sale at each and every price); as well as decreases in indirect taxes


    • Define subsidy
    • Analyse subsidies using S/D graph:
§ You must be able to show:
· How the S curve shifts by the amount of the subsidy;
· Psub, Qsub, Area (amount of subsidy paid by govt);
§ You must be able to calculate:
· Consumer spending before and after subsidy;
· Producer earnings before and after subsidy (remember, they get subsidy);
· Total amount paid out by govt
    • Explain why subsidies shift the supply curve i.e. why an increase in subsidy INCREASES SUPPLY (why producers offer more for sale at each and every price), as well decrease in subsidy.


  • Identification of the ways firms compete through price and non price competition
    • Define AND provide examples of price competition, non price competition, product differentiation, product variation;
    • Analyse the advantages and disadvantages, to both consumer and producer, of price and non-price competition;